Ant Group was expected to start its Initial public offering this week. However, that does no longer appear to be the case. For the time being, the IPO is either canceled or postponed, due to some rather interesting reasons.
A Tough Approval Process
Any company based in China looking to organize an IPO needs to meet very strict requirements. It does not matter how big or small the company as at the time of applying for approval. Even Ant Group cannot circumvent all of the red tape with ease. It is for this reason the company has struggled fairly long to get its Initial public offering approved by Chinese officials.
In fact, Ant Group was originally slated to IPO years ago. Things didn’t go according to plan by any means, and approval was only granted about two weeks ago. Such a lengthy delay is often troublesome for any company looking to go public. In the case of Ant Group, it may have been a sign of a rough road ahead.
Overwhelming Demand may Prove Problematic
It is important to understand the current interest in the Ant Group IPO. More specifically, it is estimated that as much as $3 trillion – yes, trillion – is looking to make its way to this Initial Public Offering. Investors are borrowing money left, right, and center in an effort to get a piece of the action. Such high demand is unprecedented, and may cause some problems further down the line.
Considering how Ant Group is putting up 11% of its stock through this IPO, there is nearly $35 billion waiting to be added to the company’s valuation. Such high values often attract attention from government officials, and not for the right reasons. Having high demand for an IPO is healthy, but these transactions are all likely to be scrutinized.
Jack Ma Slips up
Making matters worse is how Jack Ma decided to go on a tangent against the banking system not that long ago. In his speech, he claims how regulators focus on risk, rather than fostering innovation. While many people feel this is a correct analysis of the market, it is not something to be uttered in public. Doing so when your company is about to go public is not the smartest decision.
Ma then went on to claim how “finance should rely less on big banks”. Another valid sentiment in the eyes of many, but it also rubs a lot of people the wrong way. Opposing authorities in a public setting is always problematic. Resorting to terms such as “pawnshop mentality” and “an old people’s club” has certainly caused quite the stir in China.
The PBoC is not Amused
Keeping all of the above in mind, it is easy to figure out why the PBoC is not too happy right now. PBoC officials had asked Jack Ma, Eric Jing, and Ant Group CEO Simon Hu to explain themselves. They also met with the China Banking and Insurance Regulatory Commission, the Securities Regulatory Commission, and the State Administration of Foreign Exchange. The outcome of this meeting remains unclear.
However, the timing of “postponing” the Ant Group IPO coincides with these meetings concluding. This seems to indicate something has either been said or done to force this postponement. According to WSJ, Ant Group may now pose “a risk to the financial system”. Not a good situation for anyone looking to invest in this IPO.
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